Gross National Product
- Value of all the goods and services produced in an economy, plus the value of the goods and services imported, less the goods and services exported
- measures the income of an economy, the quantity of goods and services the economy can afford to purchase
Micro economics
Detailed treatment of individual decisions about particular commodities
Macroeconomics
Is the study of the economy as a system
Interactions in the economy as a whole
Aggregate supply
Is aggregate supply itself and aggregate supply function
Aggregate supply itself - productive capacity available in the economy to produce goods and services
Aggregate supply function - schedule detailing the national products that would be supplied at each general price level
Aggregate demand
Aggregate demand itself and aggregate demand function
Aggregate demand itself - total sum of nominal expenditures on goods and services in the economy
Aggregate demand function - schedule detailing the quantity of national product that would be purchased at each general price level
Inflation rate
Is the percentage increase in the average price of goods and services
Economic growth
The growth rate of real GDP ( or real output) over a determine period of time (e.g. Annual, quarterly etc)
Circular flow
Shows how real resources and financial payments flow between firms and households
Fiscal policy
Government policy on spending and taxes with the purpose of stabilising the economy ( keep output close to potential output)
Made by treasury in gov
Fiscal stance
Shows the effect of fiscal policy on demand and output
Expansionary fiscal policy aims to…
Raise national income
Contractive fiscal policy aims to…
Reduce national income
Monetary policy
Concerns money supply. Controlled by the central bank.
Affects C and I by altering interest rates.
Money supply
Currency in circulation outside the baking system plus deposits of commercial banks and building societies
(Value of the stock of the medium of exchange in circulation)
Open market operation
Occurs when central bank alters the monetary base by buying or selling financial securities in the open market
Real GDP
At constant prices
Nominal GNP
At current prices
Gross Domestic Product
- monetary value of economic activity in a period of time
- market value of all the final goods and services produced within a country in a given period of time
- total value of an economies domestic output of goods and services
Money
Any generally accepted means of payment for delivery of goods or settlement of debt
Money as a store
Money is a store of value because it can be used to make future purchases
Bank reserves
Money available in the bank to meet possible withdrawals by depositors
Reserve ratio
Ratio of reserves to deposits
Commercial banks
Financial intermediaries licensed to make loans and issue deposits, including deposits against which cheques can be written
Monetary Base
Quantity of notes and coin in private circulation plus the quantity held by the banking system
Money multiplier
Is the ratio of the money stock to the monetary base
Cost of holding money
Is the interest given up by holding money rather than bonds
Transactions Motive
The transactions motive for holding money reflects the fact that payments and receipts are not synchronised
Asset motive
The asset motive for holding money reflects dislike of risk. People sacrifice a high average rate of return to obtain a portfolio with a lower but safer rate of return
Required reserve ratio
Minimum ratio of cash reserves to deposits that banks are required to hold
Demand management
Uses monetary and fiscal policy to stabilise output near potential output
Inflation
Is a persistent increase in the general price level of goods and services in an economy over a period of time
( represented by pie in macroeconomics)
Potential output
All inputs fully employed
Real money supply
M/P
Leakage from circular flow…
Is money no longer recycled from households to firms
Injection to circular flow
Is money that flows to firms without being cycled through households
Nominal exchange rate
Price of foreign currency in this market
Real exchange rate
The relative price of foreign goods in terms of domestic goods
It depends on the nominal exchange rate, the domestic price level and the foreign price level
Stock of money
A given quantity of money in the economy
Flow of money
Money used to carry out transactions per unit of time
Unemployment
Those who are available for work at the current wage rate, but are without a job
Labour force
Those employed plus those unemployed
Rate of inflation
Measures the annual percentage increase in prices
Hyper inflation
Means high inflation. Often defined as 50% per month.
Stagflation
High inflation in periods of high unemployment
Comparative Advantage
A country has a comparative advantage in producing a good if the opportunity cost of producing that good in terms of other goods is lower in that country that it is in other countries
Opportunity cost
The number of a determined good that could have been produced with the resources used to produce another good
Domestic supply (DS) (international)
Production of commodity Q supplied by a country over a determined period of time (month, year etc)
Foreign supply (FS) (international)
Production of commodity Q supplied by a foreign country over a determined period of time
Domestic demand (DD) (international)
Quantity of good Q demanded by consumers in a country over a determined period of time
Foreign demand (FD) ( international )
Quantity of good Q demanded by consumers in a foreign country over a determined period of time
Domestic equilibrium in Autarky (international)
Quantities of domestic demand and domestic supply that are stable under the internal or domestic price of commodity Q
Domestic equilibrium in an open economy (international)
Quantities of domestic demand and domestic supply that are stable under the external price of commodity Q
Autarky
Closed economy - countries do not trade
Domestic support policies
Instruments used to favour a sector in the economy e.g CAP
Specific tariffs
Are levied as a fixed charge for each unit of good imported
Ad valorem tariffs
Taxes that are levied as a fraction of the value of the imported goods
Export subsidies
Payment to a firm or individual that ships a good abroad
Balance of payment
Records transactions of exports/imports and financial assets
Uncovered interest parity condition
States that the return from investing in the domestic and the foreign assets market must be the same
